Technical Analysis Explained: Congestion Entrance Trading
Here's a look at the Technical Analysis Explained series where a type of trading
, congestion entrance is explained.
Movements in the market occur from trend to congestion and back again, in a cycle that continues without ceasing , continuing to repeat forever. As long as the markets have been around, this has occurred and no doubt it will continue happening as long as markets are around . The only times when we do not see this cycle occurring are in times where there is artificial constraint, regulation, or intervention, such as things like price limits, price fixing, and market regulation - and this only causes a temporary disruption . But as long as supply and demand can vary , and as long as human beings come together in trade ad they act on opportunity and value as they perceive it, there will continue to be congestions and trends .
We can call it by many different names . Often the idea of equilibrium and disequilibrium are discussed, some speak of vertical moves and horizontal moves describing chart movements, there are some that talk about the upward movement as distribution and development is referred to as the movement sideways. Really it's all the same thing .
A trend is a movement that can take you in a particular direction ; congestions are times when the market is fluctuating between support and resistance and it's movement is horizontal .
In some of the previous articles in the Technical Analysis Explained series that a trend has a clear definition - this is a series that has three or more consecutive bars that end up closing on a particular side of the Pldot . Because a congestion is exactly opposite of a trend , the definition of congestions should also be simple , and it really is . Congestion occurs in the market when for three periods it doesn't close on one side of the Pldot . How could it be otherwise ? We talk about whether or not the market is in a trend , we're already aware of what a trend happens to be, so a congestion is basically everything else. There is either a congestion or a trend in the market .
Now congestion must be broke down into three different parts , as we define three types of congestion - congestion entrance, congestion action, and congestion exit . Here is a simple look at these definitions .
Congestion entrance trading will occur after there is a trend in the market, with three or more closes in a row on the side of the Pldot, but then the next bar closes on the opposite side of the Pldot . This bar , with its close on the opposite side of the PLdot than the previous three bars , is the first bar of a congestion , and after the trend, it's the first bar.
Congestion action trading occurs as the market swings back and forth , and as it goes forward, it closes on either one side of the Pldot or the other . We will talk about this in detail in the next article in our Technical Analysis Explained series.
Congestion exit trading occurs when the market leaves congestion and is about to start a new trend . That makes sense, does it not? If the market violates congestion confines, either the dotted line or the most recent block level , then this is congestion exit trading that is being manifested . When it comes to congestion exit trading, there is a lot to say, and the topic is interesting . But that is for another time and we won't deal with this further right now. Watch for more articles about this .
by: Ted Hearne
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